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The Purpose of Spectacular Wealth

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Capitalism vs Socialism

The next presidential election is coming up.  It looks like the contest will be between Mitt Romney and Barack Obama.  These two folks could not be more different.  To exaggerate a bit, the contest will be between a confirmed capitalist and someone who has been identified as a socialist.

After one term in office we have an idea about what Barack Obama is all about.


But what about Mitt Romney?  What do we know about him?  Seems that, according to the popular press, what we need to know about Romney we can learn from Bain Capital.  To know how Bain Capital thinks is to know how Romney thinks.  Just like Obama’s “hope and change” the ambiguity of the meaning of these words allowed everyone to fill in whatever they wanted to hear.  Without clarity of terms, meaning, and intention, then we may fall prey to filling in our own desires for what is open and ambiguous.

Image Consultants

To get elected people have to like you and people need to see their self interests reflected in those for whom they will vote.  This is why people running for any office need to manage their image.  There are professional image consultants that help people manage their public image to some level of likability – no matter what one is, when the cameras and microphones are tuned off and the doors are closed.

Behind the image – from someone who has nothing to lose

Insight about what Romney might be like, when the cameras are off and the doors closed, might be gained from a partner at Bain Capital.  If Mitt won’t speak honestly in the interest of maintaining an image, maybe someone at Bain – with nothing to lose – will speak.  And so they have – Edward Conard.

From a New York Times article:

Unlike his former colleagues, Conard wants to have an open conversation about wealth. He has spent the last four years writing a book that he hopes will forever change the way we view the superrich’s role in our society. “Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong,” to be published in hardcover next month by Portfolio, aggressively argues that the enormous and growing income inequality in the United States is not a sign that the system is rigged. On the contrary, Conard writes, it is a sign that our economy is working. And if we had a little more of it, then everyone, particularly the 99 percent, would be better off. This could be the most hated book of the year.

With regard to my previous posting Be Greedy;  Be Patient … here is an interesting insight from Conard.

A central problem with the U.S. economy, he told me, is finding a way to get more people to look for solutions despite these terrible odds of success. Conard’s solution is simple. Society benefits if the successful risk takers get a lot of money. For proof, he looks to the market. At a nearby table we saw three young people with plaid shirts and floppy hair. For all we know, they may have been plotting the next generation’s Twitter, but Conard felt sure they were merely lounging on the sidelines. “What are they doing, sitting here, having a coffee at 2:30?” he asked. “I’m sure those guys are college-educated.”

Conard, who occasionally flashed a mean streak during our talks, started calling the group “art-history majors,” his derisive term for pretty much anyone who was lucky enough to be born with the talent and opportunity to join the risk-taking, innovation-hunting mechanism but who chose instead a less competitive life. In Conard’s mind, this includes, surprisingly, people like lawyers, who opt for stable professions that don’t maximize their wealth-creating potential. He said the only way to persuade these “art-history majors” to join the fiercely competitive economic mechanism is to tempt them with extraordinary payoffs.

“It’s not like the current payoff is motivating everybody to take risks,” he said. “We need twice as many people. When I look around, I see a world of unrealized opportunities for improvements, an abundance of talented people able to take the risks necessary to make improvements but a shortage of people and investors willing to take those risks. That doesn’t indicate to me that risk takers, as a whole, are overpaid. Quite the opposite.” The wealth concentrated at the top should be twice as large, he said. That way, the art-history majors would feel compelled to try to join them.

Will greed and the lure of spectacular wealth make America a leader in the global economy?  Conard thinks so.


The problem is that many people have already given up.  The other problem is that the vote in America has been given to everyone.  The Constitution, as originally written, did not give the vote to everyone.  Part of the qualifications to vote was that you be a land owner.  Or to put a finer point on this, to vote, you had to have skin in the game.  Now, that is no longer required.  So, those who have “given up” form a powerful voting block.

What’s the danger? 

A democracy cannot exist as a permanent form of government.  It can only exist until the voters discover that they can vote themselves largesse [gifts] from the public treasury.  From that moment on, the majority only votes for candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship — Alexandar Fraser Tytler (1747-1813)

So, at some point, there will be more voters in America that are content to “vote themselves gifts from the public treasury” than opt in for the lure of spectacular wealth.

This gets back to the question you can ask of anyone… Why do more rather than less?  The answer is a pre-rational decision.

At the margins of “doing less” is the welfare system and the largesse that supports this.  Many have seen this danger

From Franklin D. Roosevelt State of the Union Address of 1935

A large proportion of these unemployed and their dependents have been forced on the relief rolls. The burden on the Federal Government has grown with great rapidity. We have here a human as well as an economic problem. When humane considerations are concerned, Americans give them precedence. The lessons of history, confirmed by the evidence immediately before me, show conclusively that continued dependence upon relief induces a spiritual disintegration fundamentally destructive to the national fiber. To dole our relief in this way is to administer a narcotic, a subtle destroyer of the human spirit. It is inimical to the dictates of a sound policy. It is in violation of the traditions of America. Work must be found for able-bodied but destitute workers.

The future of America – Doing more or doing less; Pick your poison

For whatever you think of Greed – call it a narcotic if you want – which is better for America?  Greed or dependency?  Would a world of greed be better than a world of dependent americans?  It would seem that as dependency increases without limit you will run out of wealthy people to pay for it and the country will collapse.  What happens then, Altlas Shurgged?

Whatever you think, check of the interesting New York Times article on the interview with Edward Conard of Bain Capital to perhaps gain some insight on Mitt Romney

Other Resources

The Weight of the Poor…  and how to destroy America

Written by frrl

June 1, 2012 at 6:29 pm

Be Greedy; Be Patient

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“People need to be more greedy and more patient” –
Roelof Botha

Some interesting words from Roelof Botha, a partner at Sequoia Capital

Be more greedy.  Greed has a pejorative connotation.  Here’s the dictionary definition of greed: An excessive desire to acquire or possess more than what one needs or deserves, especially with respect to material wealth.

But what if everyone stopped thinking, dreaming, inventing, producing, and creating when they had enough to satisfy a basic level of subsistence living?  Who would be around to invent the steam engine that ignited the industrial revolution, invent radio that gave us global communication, or invent the airplane that gave us domestic and international transportation in a matter of hours?  What if Bill Gates was satisfied just being a computer programmer in his basement?  What if Steve Jobs and Steve Wozniak were satisfied with computers as a hobby among friends and never created a company called Apple?  Why should any company not be satisfied with just “breaking even”?  If you can pass your high school or college courses with a grade of C or D, then why put in the extra effort to get an A?  Do you really need an A to pass that course?  Perhaps in going after that A you are showing … “An excessive desire to acquire or possess more than what one needs…”  In general, why do more when you can get away with doing less?

Let’s look at the definition of greed again

An excessive desire to acquire or possess more than what one needs or deserves, especially with respect to material wealth.

Then we should all be greedy.  Let’s call it ambition, or vision, or as Jobs might say, be greedy enough to put a dent in the universe.

If someone’s greed (read: desire, vision, ambition) creates value for someone else, or society in general, then the more greed the better.  What’s at the opposite end of greed?  Mediocrity?  Complacency?  If we had more of this, would that be better?  What about average?  Is average, “good enough”?  Do you marry an average person and make them your wife of husband?  Average products for average people is exactly what Steve Jobs never wanted to produce. Why?  We could do with less.

When I heard Botha’s quote I was reminded of the club scene between Mark Zuckerberg and Sean Parker in the movie The Social Network.  The YouTube clip is below and the dialog important to this posting is below…

SEAN takes a sip of his drink…
SEAN (simply)
A Stanford MBA named Roy Raymond wants to buy his wife some lingerie but he’s too embarrassed to shop for it in a department store. He comes up with an idea for a high end place that doesn’t make you feel like a pervert. He gets a $40,000 bank loan and borrows another forty-thousand from his in-laws, opens a store and calls it Victoria’s Secret. He makes a half-million dollars his first year.
He starts a catalogue, opens three more stores and after five years, he sells the company to Leslie Wexner and The Limited for four million dollars. Happy ending, right? Except two years later the company’s worth 500 million dollars and Roy Raymond jumps off the Golden Gate Bridge.
Poor guy just wanted to buy his wife a pair of thigh-highs, you know?
Was that a parable?

Yes, the meaning of the parable is this – don’t sell out too early.  Be greedy.

The Take

Last week the Facebook IPO generated 100 billion dollars.  Facebook has 800 million active users.  What would have happened if Zuckerberg was not greedy and not patient and sold Facebook when the next growth increment was “A hundred schools by the end of the summer.”  If you have a good thing, be patient, be greedy – that’s the message of Sean Parker to Zuckerberg and the message from venture capitalist Roelof Botha.

Here is the constraint on greed.. This comes from Jim Collins book:  “Great by Choice: Uncertainty, Chaos, and Luck–Why Some Thrive Despite Them All”

So, why do people follow them? Because of a deeply attractive form of ambition: [they].. channel their ego and intensity into something larger and more enduring than themselves. They’re ambitious, to be sure, but for a purpose beyond themselves, be it building a great company, changing the world, or achieving some great object that’s ultimately not about them.

Who would say that Zuckerberg’s greed (read: ambition/vision/commitment) and patience did not result in a good thing (Facebook) for the people on this planet in general?  And it made him wealthy far beyond his needs in the process.  So what’s the problem?

As long as greed is not about personal self-aggrandizement, and is about ambition, intensity, vision, and commitment that ends up generating value for other people then the more greed – and the more patience for greed people have – the better for all of us.

See more

An interview with Roelof Botha – here

The club scene from the Social Network …

Who can forget the famous quote from Gordon Gekko from the movie, Wall Street

The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA. Thank you very much.

Adam Smith from the 1776 book “An Inquiry into the Nature and Causes of the Wealth of Nations”

…every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.

Read more about the “Invisible Hand” here

Written by frrl

May 29, 2012 at 2:59 am

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